China’s poorest worse off after boom

China’s poor grew poorer at a time when the country was growing substantially wealthier, an analysis by World Bank economists has found.

The real income of the poorest 10 per cent of China’s 1.3bn people fell by 2.4 per cent in the two years to 2003, the analysis showed, a period when the economy was growing by nearly 10 per cent a year. Over the same period, the income of China’s richest 10 per cent rose by more than 16 per cent.

“Preliminary analysis on Chinese data indicates that average income of the bottom decile went down slightly between 2001 and 2003, whereas all other income categories saw significant increases,” said Bert Hofman, the bank’s lead economist in China.

“Our analysis suggests that a considerable number of people below the poverty line were hit by an income shock – they only kept up consumption by spending their savings.”

The findings challenge the basis of government policies aimed at narrowing the country’s politically sensitive wealth gap.

Hu Jintao, China’s president, who came to power in 2002 and is likely to win a second five-year term next year, has made narrowing the gap between rich and poor a centrepiece of his administration’s economic policies.

China, which had relatively even income distribution in 1980 when it embarked on market reforms, is now “less equal” than the US and Russia, using the Gini co-efficient, a standard measure of income disparities.

But the way to close this gap has been the subject of an intense and highly politicised debate in China, with many arguing that economic growth alone was the best way of addressing poverty, even if the results were uneven.

The bank’s finding was “very significant” in this respect, said Arthur Kroeber, of Dragonomics, a consultancy, in Beijing, as it shows that the argument that a “rising tide lifts all boats” was wrong. “If there is evidence that some people are worse off in absolute terms, then that will be an issue of concern for the government,” he said.

The fall in income for the poor cannot be explained by declining farm incomes, as food prices were rising at a faster rate than urban prices in December 2003.

Over the period that the study covers, inflation was low and in one year, 2002, negative.

Yasheng Huang, of the MIT Sloan School of Management, said that although the bank’s finding did not surprise him, he believed that poverty in China could be even worse.

He said the Chinese defined poverty at a level that understated the size of the problem, at about Rmb650 ($83) a year in income, equal to about five per cent of average per capita income, compared with the US benchmark of 12 per cent.

“The Chinese definition of the income threshold for poverty is set extremely low,” he said.

Rural residents were also forced to buy services, such as health and education, in the cities where they were much more expensive, he said.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.